Some Links for the Weekend

Here are a couple o'sorta interesting links.

True size of Africa: For most of our lives, we have been subjected to Mercator maps that flatten the world out in a way that makes things nearer to the poles look larger than things nearer to the equator. This gives us an inflated sense of the size of North America, Europe and Asia vis-a-vis South America and Africa. This map shows just how big Africa really is. Just worth looking at.

Matt Ridley on Technology and Jobs: Matt Ridley has labeled himself the Rational Optimist and, whenever you think things are going bad, it can be good to visit his blog.  In this post, he talks about why economists don't think that technology is going to put everyone out of a job.

Socialist Critiques of Trade

In my IPE book, I spend a lot of time going over the Liberal economic models of trade, which generally see trade as mutually beneficial to the nations trading in it. However, from a Socialist  perspective, trade is potentially exploitative.

In Marxian economics, the value of  a good is an objective thing. Goods are worth the value of the labor used to produce them. Therefore, when two goods are exchanged between parties, the only fair price or rate of exchange is one that reflects the value of the labor in each. If it takes an hour of labor to produce a yard of cloth and 2 hours labor to produce a bottle of wine, the only fair rate of exchange is two yards of cloth for 1 bottle of wine or a price price of cloth/yard that is 1/2 the price of wine/bottle. This is because, only at the 1/2 ratio of exchange or prices will equal amounts of labor be exchanged for one another.

If, however, cloth and wine are traded at a different rate or relative price, say 1 yard of cloth for 1 bottle of wine, then the exchange is unequal because one hour of labor from the cloth maker is being exchanged for 2 hours of labor from the winemaker. Such an unequal exchange is not only unfair, but it also exploits the winemaker by taking one hour of his/her labor and giving it to the cloth maker without compensation. In Marxian terms, the exchange will alienate the value of one hour of labor from the winemaker.

From this point of view, much of international trade is based on unequal exchange. When workers in one nation are paid lower wages than workers in another, the low wage country ends up trading goods that required more labor to produce than was used to produce the goods the country receives in exchange. Such trade exploits the low wage workers to benefit the high wage workers. Of course, if you throw capital into the mix, the exchange of labor intensive for capital intensive goods means that lots of labor (in the form of labor intensive goods) is being exchanged for less labor (in the form of the capital intensive goods). This exploits the workers in the labor abundant country to benefit owners of capital (better known as capitalists) in the capital abundant country.

The concept of unequal exchange is simple and appeals to an intuitive sense of, and desire for, fairness that is at the heart of socialism. However, it is misguided from the point of view of neoclassical economic theory which conceives of voluntary exchange as mutually beneficial and value producing. From this point of view, the object of exchange is not to trade equal value for value, but for both parties to trade something of lessor value for something of higher value.

Of course, this is only possible if we allow for individuals to have differing values for goods (i.e., a subjective concept of value), or to face different trade offs between producing one good or another (i.e., differing opportunity costs). An example of the first case would be two kids trading an apple for a banana based on the fact that the kid with the apple likes bananas more than apples, and the kid with the banana like apples more than bananas. By trading one for the other, they both give up something they like less for something they like more. Through this arbitrage, both parties are better off as a result of the trade precisely because they have differing subjective values for the two goods and this difference creates the opportunity for mutually beneficial trade.

David Ricardo's hypothetical scenario of trade in wine and cloth between  England and Portugal is an example of the second case. In this scenario, England and Portugal can both produce wine and cloth, but they require differing amounts of labor to produce a unit of either good. The table below lists the hypothetical amount of labor needed to make cloth and wine in England and Portugal.

	Labor Required to Produce Cloth	Labor Required to Produce Wine
England	100	120
Portugal	90	80

According to the Theory of Comparative Advantage, both nations would be better off if they specialize in the production of the good for which they have the lower opportunity cost.  In England, the opportunity cost of producing one unit of cloth is the amount of wine it could have produced if it used the labor of the 100 workers needed to make the cloth to make wine instead. Given that it takes 120 workers to make a unit of wine, England's opportunity costs for producing one unit of cloth is 100/120 or 0.83 units of wine. Applying the same logic to Portugal, we see that its opportunity cost for making wine is 90/80 or 1.13 units of wine. If we further apply this logic to the production of wine, we see that England's opportunity cost for making one unit of wine is 120/100 or 1.2 units of cloth, and Portugal's opportunity cost of producing one unit of wine is 80/90 or 0.88 units of cloth. So England should specialize in producing cloth, Portugal in producing wine, and they should trade the goods between them.

However, according to the Marxian concept of equal exchange, this exchange will only be fair or non-exploitative if the rate of exchange of cloth for wine is set so that equal labor is traded for equal labor. Since it takes 100 workers to make one unit of cloth in England and 80 workers to make one unit of wine in Portugal, the Marxian equal exchange rate of England cloth for Portuguese wine would be 100/80 or 1.25 wine for 1 cloth. 

But does it make any sense for the two countries to trade cloth and wine at this rate (or the relative price it implies)? England would be getting 1.25 units of wine in exchange for 1 cloth, which requires the labor of 100 workers to produce. Since those 100 worker only produce 0.83 wine, England clearly benefits from getting 1.25 wine in exchange for 1 cloth. But,  it is a different story for Portugal. It must give 1.25 wine, which requires the labor of 100 workers, in exchange for 1 cloth, which would only require 90 workers to produce for itself. Therefore, Portugal would be exchanging the work of 100 workers for something that it could have produced with 90. Thus, trade based on the Marxian concept of equal exchange would make Portugal worse off than if it didn't trade at all. 

In broader terms, the Marxian analysis (and the concept of  fairness in general) focuses on what one party gets out of the exchange versus what the other party gets. Neoclassical economics focuses on what each party can get by trading as opposed to what what each one could do for themselves if they didn't trade . That is to say, the question of whether England is getting more or less out trade than Portugal is irrelevant. What matters is whether England and Portugal are both getting more out of trading with each other than they would by not doing so. This focuses the analysis on the choices each party makes over the alternatives that are actually available to them rather than comparing their situation to some ideal scenario.

Of course, many people will make fairness arguments without consciously taking a socialist stance or knowing the first thing about Marxian micro-economics. For instance, in the mid 1990s their was a big controversy over Nike's operations in Vietnam as epitomized by the NYT article. A common meme in the exploding debate involved comparisons of Nike's profit and Michael Jordan's endorsement fees with the wages being paid to Vietnamese workers. The staggering disproportion seemed to speak for itself but did it speak to the most important issue?

From the perspective of neoclassical economics the most important issue is not whether an NBA superstar gets paid more than a Vietnamese factory worker, but whether the Vietnamese factory worker is better off working in the Nike plant than not doing so. When researchers looked at this issue, they found that workers in plants run by multi-nationals were paid wages that run an average of 10%  above the local wage rate and that US affiliated multinationals  paid a premium of 40% in high income countries and up to 100% in low-income countries above the local market wage. Also, in 2000, Vietnamese workers in foreign owned plants were found to be in the top 20% of the population in terms of household expenditures. So, from this point of view, the Vietnamese workers were better off working for Nike than working in the other jobs available to them.

Liberal Interpretations of the Crimean Crisis

Whenever you try to apply Liberal theories to a case in which one nation uses force on another, the Liberal perspective appears to be at a disadvantage vis-a-vis Realism since force has in fact already been used. For instance, Mearsheimer's analysis of Russian actions and the underlying assumption that only power can deter power seems quite plausible at the moment.

However, one must remember that, in 1990, Mearsheimer predicted that the end of the Cold War could lead to a multi-polar  and more war prone international system in Europe.  He has more recently argued that Europe has remained peaceful because the United States has acted as the pacifier of Europe by maintaining large forces in the region since the end of the Cold War. In this view, the fact that European nations are all democracies, that they have become more economically interdependent, or that they have established a fairy strong  international institution in the EU are of minor importance.

But now that we have something that looks like an old fashioned territory grab that is the bread and butter of Realism, what do Liberal theories have to say about this? Unfortunately, Liberalism is a term that covers a wide array of different theories and perspectives, or what I call flavors of Liberalism. Furthermore, none of these theories, or at least none of the Neo-Liberal theories commonly used in academia, entirely discount the importance of security and power, or replace Realism's model of the world with entirely different one. In general, they argue that Realism is missing some important aspects of the international system and state behavior by focusing entirely on power, security, and the international system.

Republican Liberalism: The general point of view here is that a nation's domestic politics has an impact on its international behavior. Democratic Peace Theory is perhaps the most important part of this perspective and it predicts that democratic nations will not fight wars with other democratic nations. Therefore, one might suppose that, since the fall of the Communist system, Russia would be less likely to get into a war with democratic nations.

However, this presumes that Russia is currently a democracy. After all, Putin is a democratically elected president. But it takes more than an election to make a democracy (note that even North Korea stages elections). The folks at Freedom House provide an an index of democracy that rates the political systems of the world according to their level of civil and political rights. On a scale of 1 (best) to 7 (worst), Russia gets a 5.5, which Freedom categorizes as Not Free. In contrast, Ukraine gets a 3.5, or Partly Free, rating and most Western European nations get a 1, or Free rating. (Freedom House also has a world map that shows the category of all nations in the world).

So, Russia's actions can be seen as the result of a lack of democracy in the nation. Indeed, Freedom House is doing an "I-told-you-so" on the subject:

Since 2003, Freedom House has documented the country’s move to authoritarian rule and warned of Russian efforts to restore hegemony over Ukraine (see attached and below a selection of quotes from past Freedom House analysis on Russia).  We explained how this increasingly authoritarian system posed a threat to democracy not just inside Russia itself but through Vladimir Putin’s support for dictators and pressure on democratic governments among Russia’s neighbors.  Blocking democratic development and integration with the West along Russia’s periphery is integral to Putin’s repressive rule.  The nature of the Russian regime—kleptocratic authoritarianism—lies at the core of the current crisis between Russia and Ukraine.

Beyond Democratic Peace, Republican Liberalism can be thought to encompass more specific analyses of domestic political influences on foreign policy. One example of this would be Boris Barkanov's argument that Putin is playing to nationalist and religious audiences in Russia. In general, Barkanov sees Putin as "a strategic actor motivated by domestic concerns." He argues that portraying Putin as a dictator misrepresents that nature of Russian domestic politics which he describes as follows:

Russia is a hybrid system that combines elements of authoritarianism and pluralism.  State-sponsored repression, though now growing, has been selective and relatively limited.  Intense elite competition, elections, and public opinion are managed, but they matter more than the conventional wisdom holds.  This means a successful solution [to the crisis] has to accommodate an attentive public, as well as domestic elites’ various security, economic, and ideological interests.

Barkanov describes Putin himself as follows:

Some have suggested that Putin may be a new Hitler. A better historical analogy is to think of him as a 21st century Russian Bismarck.  My research supports former Secretary Henry Kissinger’s view that Putin is an intelligent, rational, strategic actor who views politics through a realist lens that is informed by his view of Russia’s history.  He began as a neo-liberal statist who has gradually drifted to the right for political reasons.
From this point of view, Putin's moves in Crimea have been more of a tactical response to unexpected developments in Ukraine than part of a grand strategy. However, because of the national and religious importance conservative Russian attach to the Ukraine (not to mention the economic interests that elites have in current ties to Ukraine), Barkanov does not expect Putin to back down easily.

Another concept that loosely fits in this category is the diversionary war hypothesis, This posits that leaders may use small scale wars as a means of diverting public attention from domestic difficulties. This idea was popularized in the film "Wag the Dog" which takes its name from the idea of the tail wagging the dog.  In a post on the Monkey Cage, Kimberly Marten discusses the role that Putin's intervention might play in diverting public attention away from the corruption and waste in the Sochi Olympics. Though Marten does not argue that this provided the primary motivation for Putin's moves, she notes that the Crimean Crisis was well timed since critics of the Sochi Olympics had been holding off until after the games were over. While domestic political diversion has seemed at play in wars like the Falklands War, the wag the dog meme too often threatens to become conspiracy theory.

Economic or Commercial Liberalism: From this point of view, economic ties between nations are supposed to make them less likely to go to war with one another. More specifically, when nations become economically interdependent on one another, the costs of going to war are thought to be so high that the nations will seek other means of resolving their differences.

Russia and the EU are arguably in a situation of interdependence. According to the BBC, the EU is Russia's largest trading partner by a wide margin with 267 billion Euros in trade with Russia. Russia's next largest trading partner is China with only 64 billion Euros in trade. Europe also buys 84% of Russian oil exports and 76% of its natural gas exports (most of which flow through Ukraine). Of course, Europe needs these imports of fuel to keep itself going, thus both sides are dependent on one another to a good extent.

As for Ukraine and Russia, the relationship is a little more lopsided. Trade between the two countries amounts to about 24 billion Euros per year, only 1/10th as much as Russian trade with Europe. Much of that trade was natural gas, which Russia was selling to Ukraine at a greatly reduced price to encourage stronger ties (and discourage a move towards the EU). As a result of Ukraine's change on government, Russia is now demanding a higher price for gas and a refund of the gas discount (to the tune of $12 billion). So, in some ways, Russia's economic position vis-a-vis Ukraine is improving as a result of the crisis, especially if Russia expected that a Ukrainian move towards the EU was going to diminish the economic benefits of friendly relations with Ukraine anyway.

Of course,  many of Russia pipelines run through Ukraine,and the Ukrainians could threaten to shut them down. However, that would cause a great deal of harm to the Ukrainian and European economies and could provide a pretext for a Russian invasion. Alternatively, a large Russian invasion of Ukraine might either force the Ukrainians's hands or simply disrupt the pipelines as collateral damage. This creates a rather precarious situation.

In metaphorical terms, I would describe the situation this way. Imagine there is a big puddle of gasoline. Russia and the EU each have one foot stuck in the edge of it and Ukraine is standing in the middle. All three have lighters which they can use to ignite the gas and burn all three of them.

In such a situation, no one will want to make any sudden big moves that might cause one of the others to light the gasoline on fire. However, because anyone who lights the fire will also get burned, they will be reluctant to do so. As a result, each party can probably get away with a lot of subtle little moves without triggering someone else to spark a conflagration. That is to say, having a lighter doesn't give anyone control over anyone else, but no one will be able to ignore the fact that the other two have lighters. Therefore, everyone will be constrained in what they do and "go small, or go home" will be the order of the day.

In terms of the Crimea, Russian actions have been relatively constrained (at least up to this point). Since they started out with a major military base there, Russia did not invade the peninsula so much as come out of the barracks to occupy it. Even then, they weren't willing to own up to the fact that it was their own forces taking over the territory. While labeling their forces "Crimean self-defense units" was a transparent fiction, it bespoke a certain level of sensitivity and a perceived need to be circumspect. Also, the fact that the Crimean parliament actually kicked off event by declaring independence from Kiev probably presented Putin with an opportunity to secure the peninsula in a way that would not provoke a massive response from Ukraine and the EU.

In this sense, Russia is "going small" and their economic interdependence with the EU and, to lesser extent, with Ukraine may keep their actions small (compared to what they might otherwise be) even if it doesn't make them go home.

Institutional or Regulatory Liberalism: This is the view that having international rules and institutions can mitigate the raw effects of anarchy and allow more cooperation between nations. Realists may scoff at this notion and quip that institutions and rules didn't stop Hitler, but I think that such arguments make a straw man out of institutional liberalism by overstating the expectations of what institutions can accomplish. To my mind, the First Gulf War in 1990-1991 is a good case to examine. Saddam Hussein blatantly violated the rules of the UN Charter when he invaded Kuwait. While the rules didn't stop him from doing so, they greatly facilitated a UN based response and a broad coalition to oust him from Kuwait. Also, prior to the invasion,  the US did not have a formal treaty with Kuwait that committed the US to defend Kuwait (something that famously came up in his interview with the US ambassador to Iraq a couple days before he invaded). One is left to wonder what effect a defense pact with Kuwait would have had on Saddam's calculations of the US response to his planned invasion.

As far as Crimea is concerned, I have already blogged on varying views on the role of international law and institutions and will let that post finish this one off.

Quick Points: Russian Strength and the US in a Long War

I am very contrary before my first cup of coffee, and two headlines in the news got me thinking (to the point of blogging).,

Russia: First there is this one from The Wire, "Obama: No, Romney Was Wrong. Russia Is Weak, Not Strong." First of all, I thought (and still think) that Romney was way off when he said that Russia was the United States' number one geopolitical foe. If you measure a foe by its intentions, North Korea and Iran seem to be more of a problem. If you measure a foe by its capabilities, China, India, heck the EU are all more likely candidates for the top slot. Russia just doesn't make the cut.

But does that mean that Obama is right when he says Russia is weak. It think is is pretty clear that Russia is not weak in the Crimea or Ukraine. While Obama is quite right to call Russia a regional power, Ukraine is in Russia's region where Russia has much more power than the US. Of course, this imbalance exists largely by default since the US has never really had any vital interests in the Black Sea (the term "backwater seems appropriate here). In contrast, Russia does.

I would also point out that the Europeans have much more at stake with Russia and Ukraine. Not only are they much closer, but they are more economically intertwined with both nations. US trade with Russia amounts to about $20 billion/year, EU trade amounts to about $240 billion/year. The EU gets 33% of it natural gas from Russia, mainly through pipelines running through Ukraine, and this amount of natural gas cannot be acquired from other sources. Since pipeline have two ends, Russia also cannot sell that much natural gas to other customers and its economy is very dependent on energy exports. So, Europe is probably as ''strong" as the US in this situation.

US in a Long War: Then there is this headline from Reuters: Deep budget cuts may erode U.S. Army ability to fight long war: general. IN the article, Gen. Ray Odierno expresses doubts that the proposed $496 billion 2015 defense budget would allow the US to  "execute one prolonged, multi-phase operation that is extended over a period of time." While I understand his concerns about the defense cuts, I have to wonder who he thinks the US would be fighting a long war against. Even with the proposed cuts, the US would be spending 4 times as much on defense as the next largest defense spender, China.

Also, what kind of war are we talking about here? Odierno has a lot of experience in Iraq and Afghanistan, but the long portion of those wars was a counter-insurgency not an interstate force-on-force conflict. Indeed, the force-on-force portions of those wars were stunningly brief and required far less forces than conventional military thinking at the time imagined. We look back at Bush's "Mission Accomplished" banner as a sad joke, but we should remember that it did signal the end of the conventional phase of the war in Iraq. The counterinsurgency didn't get going until the US had obliterated the Iraqi government and military and found itself in the role of occupier.

The lesson one might draw here is that modern wars against other militaries don't last long but wars with segments of a nation's population do. Therefore, if you envision the US getting into a long war, you are probably talking about a case in which the US has defeated another government and is occupying some (or all) of its territory, or one in which the US has committed forces to support a government in a protracted counter-insurgency. In the first scenario, the immediate external threat from the other nation, which threat presumably sparked the conflict, has been eliminated and the US is dealing with a messy aftermath. In the second scenario, the US is intervening to help a government whose resources have to be factored into the equation and, if those resources are not substantial, one has to question whether the US should or would be involved in the first place.

If you buy that reasoning, then the question for the US is whether being less able to deal with those scenarios poses an acceptable or unacceptable risk to US national security.

T-TIP: Transatlantic Trade and Investment Partnership agreement

President Obama's trip to Europe this week, and the news reporting on it, will undoubtedly be dominated by the Crimean Crisis and security issues. Also, there will be a nuclear summit ad meetings with Asia and Middle Eastern leaders.

One issue that is likely to get back-burned is the ongoing negotiations over the  Transatlantic Trade and Investment Partnership (T-TIP) agreement. This agreement seeks to not only reduce tariffs between the US and EU, but also to reduce regulatory barriers to trade between the US and EU.

From the European point of view, "What the European Union wants to do with TTIP is to find common-sense ways to make regulations set by the EU and the United States more compatible, while keeping
people protected." The EC thinks this can be done in the following ways:

Existing regulation can be tackled in different ways:

• One idea would be to formally recognise that some regulations have broadly the same effect. This would mean that companies, under certain conditions, could simply comply with  one set of rules in order to sell in both markets. 
• Another idea would be for both sides to move their regulation closer to internationally agreed ways of solving the problem at hand. 
• A third way to work, where EU and US regulations are very different, would be for regulators to cooperate more on how they put the regulation into practice.

From the US point of view (with regard to regulations), "We seek to eliminate or reduce non-tariff barriers that decrease opportunities for U.S. exports, provide a competitive advantage to products of the EU, or otherwise distort trade, such as unwarranted sanitary and phytosanitary (SPS) restrictions that are not based on science, unjustified technical barriers to trade (TBT), and other “behind-the-border” barriers, including the restrictive administration of tariff-rate quotas and permit and licensing barriers, which impose unnecessary costs and limit competitive opportunities for U.S. exports."

In general, the EU view leans towards regulations as a means of protecting the safety of its citizens while the US leans towards seeing regulations as a means of protecting domestic industries. It will be interesting to see how (or if) the EU and US reconcile their contrasting views.

It is also interesting to note what the EC thinks is in it for Europeans:

The aim is to increase trade and investment between the EU and the US by unleashing the untapped potential of a truly transatlantic market place. The agreement is expected to create jobs and growth by delivering better access to the US market, achieving greater regulatory compatibility between the EU and the US, and paving the way for setting global standards. If such an ambitious agreement were achieved, it is expected that every year an average European household would gain an extra €545 and our economy would be boosted by 0.5% to up to 1% of GDP, or €119 billion annually, once fully implemented.

Note that the result of an "ambitious agreement" is expected to be a 1/2-1% increase in GDP. Nothing to sneeze at, but not a huge increase in well-being.

Realist Take on the Crimean Crisis

This is the obligatory "Theories of IR" week in my World Politics course and it seems fitting, if a bit tedious, to talk about the Crimean Crisis from the theoretical perspectives of Realism and Liberalism. So this post will build on some stuff I have already posted and try to give a sense of how the Realism would explain the crisis and predict future outcomes. I'll tackle Liberalism in a later post.

To get the ball rolling, let's talk about what Realism isn't. There is a tendency for students to equate Realism with a hawkish or aggressively nationalist stance of foreign policy.  Also, because the term "liberalism" is used to describe the theoretical approach with which Realism in most often contrasted,  students sometime associate Realism with a conservative point of view (no matter how much one talks about the academic and popular usages of the term "liberal" differ). Therefore, the recent commentary by conservative columnist Charles Krauthammer might seem like the epitome of the Realist perspective on the Crimean Crisis

Krauthammer was particularly quick to come out of his corner, swinging at Putin and Obama. On Feb 27th, he analyzed Putin's actions in terms of the context of power and hegemony. In Krauthammer's view, Putin is seeking to restore a Russia mini-empire in Eurasia and his moves against Ukraine are just another step in the process of doing so. This process dates back to Russia's 2008 war with Georgia and was continued more recently with economic pressure on Ukraine to abandon plans for closer ties to Europe. As for Obama, Krauthammer blames him and other western leaders for creating a power vacuum in which Putin was free to pressure Ukraine and now may be free to invade parts of it. Therefore, Krauthammer calls on the US ad EU to counter Russian pressure (with a naval flotilla in the Black Sea) and provide economic support to the Ukraine (starting with the $15 billion dollar loan) until the Ukraine is on a firm financial footing. He concludes, "Either Ukraine will fall to Russian hegemony or finally determine its own future — if America balances Russia’s power.

Krauthammer is apparently taking an offensive realist point of view, but that this appearance may be deceiving. Sure he is talking about power and the need to balance it, but I think he is missing a couple of  key points. First, he is arguing that Putin’s goal is to restore the Soviet Empire while implying the US goal is to promote peace. Yet, realism assumes that all states have the same goals, either maximizing their security (Defensive Realism) or maximizing their relative power (Offensive Realism). Therefore, Putin's supposed goal of restoring the empire would be more properly viewed as potential strategy for balancing or maximizing relative power. While peace in Ukraine is certainly desirable, the US’ overriding interest lies in maintaining its own security or relative power position.

This may seem like a quibble, but keeping one’s eye on the power might lead one to take a different view of the situation. If one asks what changes in the distribution of power are at stake in the current situation, one might argue that Russia was faced with more potential losses of power than potential gains. Closer ties between the Ukraine and EU would represent an indirect loss, but anything that threatened Russian access to its naval base in Sevastopol would represent a much more direct (if not quite catastrophic) loss. In this context, a move to take direct control of the region around its naval base would be aimed more about avoiding a loss in power than in acquiring a gain in power. Therefore, Russia's moves are largely defensive and understandable.

Stephan Walt provides a more traditional Realist analysis of the situation that serves as a good counterpoint to Krauthammer. Walt focuses on the the issues of power and interest involved for both the US and Russia and argues that the Russia has both more vital interests at stake in Ukraine and more power in locus to pursue them than the US does. Therefore, unlike Krauthammer, he doesn't criticize the US for not having more aggressively supported Ukraine nationalists. Instead, he argues that the US and EU were naive to think that Russia would sit on its hands while the Ukrainian government sought closer ties to the West. Where Krauthammer blames Obama for not balancing Russian power to thwart Putin's imperial ambitions, Walt blames the US for not recognizing that Russian interests and proximity could not be balanced by a more distant and less interested US.

John Mearshiemer, arguably the father of Offensive Realism, sees things pretty much the same way that Walt does. By trying to get Ukraine out of Russia's orbit and into Western Europe's, and by supporting the protesters that ousted a pro-Russian Ukrainian regime, Mearshiemer argues that "Washington played a key role in precipitating this dangerous situation, and Mr. Putin’s behavior is motivated by the same geopolitical considerations that influence all great powers, including the United States."

In Mearshiemer's view, the US and NATO have continued to treat Russia as a threat since the end of the Cold War and have threatened its security by expanding NATO and planning to build missile defense systems in Europe. In this context, a pro-Western government in Kiev was a threat to Russian interests that Putin could not ignore. In a textbook perfect expression of the Realist view of the effect of anarchy pn state behavior, Mearshiemer explains:

Mr. Putin’s view is understandable. Because there is no world government to protect states from one another, major powers are acutely sensitive to threats — especially near their borders — and they sometimes act ruthlessly to address potential dangers. International law and human rights concerns take a back seat when vital security issues are at stake.

But, as I like to point out, anarchy in the international system and the supremacy of security concerns are assumptions in Realist theory, meaning they do not vary from situation to situation. Since the actions of states (or their leaders) do vary, you have to look at relative power to predict what a state will or won't do.

With regard to power, Mearsheimer notes (indeed laments) that Ukraine gave up its nuclear weapons when the Soviet Union broke up, which left it without a credible deterrent to Russian conventional military superiority. Russia also has a good deal of political and economic leverage vis-a-vis the US and EU. With security at stake and some good cards to play, Mearshiemer thinks that it was not only understandable that Putin acted as he did, but it is also unlikely that he will fold under pressure from Western sanctions.

So, rather than being hawkish like Krauthammer, Mearsheimer argues that Obama should seek to recognize Russian interests while supporting Ukraine's territorial integrity. In his words:

To achieve those goals, the United States should emphasize that Georgia and Ukraine will not become NATO members. It should make clear that America will not interfere in future Ukrainian elections or be sympathetic to a virulently anti-Russian government in Kiev. And it should demand that future Ukrainian governments respect minority rights, especially regarding the status of Russian as an official language. In short, Ukraine should remain neutral between East and West.

Some might say these policy prescriptions amount to a defeat for America. On the contrary, Washington has a deep-seated interest in ending this conflict and maintaining Ukraine as a sovereign buffer state between Russia and NATO. Furthermore, good relations with Russia are essential, because the United States needs Moscow’s help to deal with Iran, Syria, Afghanistan, and eventually to help counter China, the only genuine potential rival to the United States.

China's Ghost Cities: Bumps on the Road or Highway to Hell

An AFP headline caught my attention the other day, "Some debt defaults 'healthy' for China market: central bank." This is interesting to me because I am currently using Michael Pettis' (2013) analysis of China's economy as my working hypothesis or analytic framework for sifting through information about China's economy (there are others in my head, but this one has been getting a lot of play). According to this view, China's adherence to what Pettis calls the Asian Growth Model has overstimulated investment in China leading to many investments that will never never pay off. In short, without major reforms, the loans associated with these investments will eventually go into default leading to a credit or banking crisis.

One of the things that has been fueling the supposed over-investment is the high level of government spending (both at the central and local levels) on investments. Loans associated with government projects are implicitly guaranteed by the government, which makes them seem like good bets for banks even if the prospects of the investment actually paying off are dubious. Therefore, banks will loan more money to more of these projects than they would to private investors. Also, when you have government banks lending money for government projects, there is always the suspicion that these loans are not being scrutinized enough by the banks.

Therefore, it is interesting to see People's Bank of China (PBC) deputy governor Pan Gongsheng acknowledge the problem by saying "Guaranteed repayment... although it will ensure short-term stability, won’t help the market to effectively differentiate risks and will eventually lead to accumulated risks." Even more interesting is his suggestion that allowing defaults on some of these loan might help the banking system do a better job of managing risk by injecting some risk into the system. Presumably doing so would force banks to be more selective in evaluating and approving loans.

However, there is the danger that doing this now amounts to closing the barn door after the horse got out. This would be the case if Chinese banks had already issued lots of bad loans, or what would be bad loans if they were not based on the belief that payments would be guaranteed by the government. Weakening the payment guarantees on these loans now cannot effect decisions that have already been made.

The question then is whether China already has a dangerous amount of these loans on the books. I have previously discussed the possibility that China's large investments in High Speed Rail might turn out to be wealth destroying in nature.

But, perhaps a better example of over investment may lie in the so-called Ghost Cities of China. These are massive urban development projects that have remained largely uninhabited. Adrian Brown reported on several such examples in a 2011 SBS Dateline Report. The report notes that China was building 10 new cities a year, but found several of the cities remain empty several years after being built. Against a back drop of modern high rises under construction, a Hong Kong analyst likens the urban construction to Pyramid building in that it contributes to measured GDP growth while doing nothing for the quality of the population's life. The report notes that the apartments being constructed are priced way above the ability of most Chinese to afford. So, while there is a huge demand for better housing, these cities remain mostly vacant. The report suggests that China may creating a massive real estate bubble.

About a year later, Yale economist Stephen Roach made the counter argument that China needed to build these cities in anticipation of a massive migration of the population from rural to urban areas. With 15 to 20 million people moving from rural to urban areas each year, Roach argues that China cannot wait to build infrastructure and housing to accommodate them. He points to the city of Shanghai Pudong as an urban project that was empty when it was built in the 1990s, but had grown to a population of 5.5 million by 2013.

However, last September, Brown revisited a city in his earlier report for another Dateline report, and found that little had changed over the previous 2 years except that the government did not want him there. He also found new cities under construction.

Also, this week the Sydney Morning Herald reports that at least one of these cities are now on the brink of financial collapse. The city of Ningbo has $570 million in debt, mostly to banks, and is one the verge of collapse.  The report estimates that there are 10 other cities that y find themselves in a similar situation. As for the migrations of people from rural areas, the report noted that China's workforce has decreased in the last two years and the flow of rural workers to urban areas halved since 2010, from 12.3 million to 6.3 million per year.

If, as PBC's Pan Gongsheng suggests, the government lets local governments default on loans, this will not only jeopardize outstanding loans to these cities but make it much harder for them to get new loans. These cities will need new loans to roll-over current loans and to get additional funds for operating and maintaining their property. Therefore, unless delicately handled, such a change in policy might bring the situation to a head and spark a crisis in more ghost cities. In deed, it might uncover problems in cities that don't appear to be ghosts at first glance.

So, we may have a good old fashioned real estate bubble here. The government, both at the central and local levels, may have acted like a real estate developer that see a trend (i.e., the growth of urban populations and the success of cities like Shanghai Pudong) and bets heavily on it continuing unabated in the future. The trend then abates leaving the developer with a very bad investment and a bunch of bad loans.

Also, we may have something unique to China due to the planned nature of its economy. As suggested by the analyst in the 2011 Dateline report, China may have been using urban construction to meet GDP growth targets. In this scenario, the central government set growth quotas for regional governments to meet. This created an incentive to not only engage in urban construction, but also to focus on constructing high value property like luxury high rises and shopping malls. Doing so inflates the paper value of the property constructed and justifies higher costs of construction which adds to the short term stimulative effect of the project.

The downside of doing this is that, years later, the actual value of the real estate may fall short of the property's paper value and the inflated cost of constructing it. At that point, the value of the property will have to be written down and the loans allowed to default with a negative impact on GDP. Pettis (2013) argues that because of this much of China's recent growth in GDP may turn out to be illusory and show up as future decreases in GDP if/when the loans go into default.

While you might think that this would discourage such  short sighted decision making, the incentive structure of local and regional bureaucrats might encourage it. From the bureaucrat's point of view, meeting the growth target is the key to keeping his/her job and exceeding the target is the key to being promoted. Once promoted, the bureaucrat's responsibilities will shift and the project will become somebody else's problem by the time it collapses. Therefore, the bureaucrat has an incentive to focus on the short term effects of the policy and place minimal emphasis on its long term effects.  Pettis (2013) notes that this is a recognized problem with government planning known as the Commonwealth Effect.

Factoids: US Current Account Deficit Down, Petroleum Exports and Financial Account Up

Here are some news tidbits about US trade and net flows of dollars into and out of the US.

AP reports that the US current account deficit from October to December of 2013 was at its lowest level in 14 years. The biggest component of the current account is the trade balance (exports - imports) which is generally in deficit for the US. However, the current account also includes the balance of transfer payments such as income on investments, private transfers of money (such as people sending money to relatives in other countries), and government transfers between nations (such as foreign aid).

The current account deficit for last quarter of 2013 was $81.1 billion (down from $96.4 billion from July-September 2013). The US received more income on its investments than it paid on foreign investments in the US so there was a $64 in that part of the current account. The balance of trade in services was also positive with a surplus of $57.9 billion.

The balance of trade in goods was negative with a deficit of $171.8 billion dollars. Both exports and imports increased in the last of quarter of 2013. If we look at the Bureau of Economic Analysis' (BEA's) new release, we see that the US exported $405.4 in goods (up from $7.6 billion from the previous quarter) and imported $577.2 billion in goods (up just $1 billion from the previous quarter).

US Oil Imports and Petroleum Exports: Part of the reason that US exports rose faster than US imports is that US oil production has been increasing, thereby decreasing imports of oil. At the same time, US exports of petroleum products (refined products such as gasoline, diesel, aviation fuel and heating oil) have been increasing. Indeed, US petroleum exports have almost doubled since 2008.  Mark Perry has some good graphics that show the dramatic increases in US oil production and petroleum product exports, as well as the equally dramatic decrease in the percentage of oil the US imports.

It is important to note that US exports of petroleum products are driven by more than just increases of crude oil production.  Bloomberg reports that US demand for distillate fuels (which includes gasoline, diesel and heating oil) fell to its lowest level in 16 years. Part of this is blamed on the recent bad weather which resulted in people driving less, but this is also part of a larger trend in distillate fuel consumption in the US. As people drive more fuel efficient cars, airlines buy more fuel efficient planes, and people switch from oil to natural gas for more heating, they demand less distillates. Also, since 2005, federal mandates have required that increasing amounts of ethanol be blended with gasoline and diesel, thereby decreasing the amount of oil distillates we use when we pump a gallon of fuel into our cars. All of this leaves refiners with excess capacity which they sell overseas (mainly in Latin America).

Current Account versus Capital (or Financial) Account: Another thing to keep in mind when looking at, or thinking about, the US current account deficit is the the capital account surplus that inevitably goes along with it. News reports never mention this even though the capital account information is usually included in the same BEA news release they are using as a source under the heading of Financial Account. The BEA's Financial Account tracks changes in US owned assets abroad and foreign owned assets in the US (for some reason BEA does not use the generic economic term of capital account). An increase in US owned assets abroad shows up as a negative number or deficit here as it reflects an out-flow of dollars. Conversely, an increase in foreign owned assets in the US shows up as a positive number or surplus because it reflects an in-flow of dollars to the US.

In the last quarter of 2013, there was a surplus of $173.7 billion in the Financial Account (up from $68.2 billion in the third quarter of 2013). This increase probably has something to do with the Dow Jones Industrial average steadily increasing 1000 points (or 6%) from October to December of 2013, which might have attracted foreign investment. Alternatively, the large inflows of foreign investment may have been behind the increase in the US stock market if foreign investors were driven by a lack of good investment alternatives in the rest of the world.

Note that the financial account surplus increased 154% from one quarter to another and was 114% larger than the current account deficit in the same quarter.  This is probably the bigger news in the BEA press release because it means that there was a net inflow of $92.6 billion in the US from October to December last year. It also shows the problem with only focusing on one side of the national accounting equation. If all you look at is the trade or current account deficit, you think that the US bled dollars into the world and the best news is that the bleeding slowed down a bit in the end of 2013.

Of course, in the long run the current and financial accounts must balance. The dollars that go out must come back to the US because their value lies in the fact that they are a claim on the goods and services produced in the US. Also, in technical terms, the zero balance between the two accounts is an accounting identity that results from how the two accounts are defined. In practice, the floating exchange rate of the dollar (or its market value) keeps the two accounts in balance over long periods of time.

This is more obvious when we look at yearly figures. For all of 2013, BEA estimates that the US current account deficit was $379.3 billion and the financial account surplus was $351.2 billion (these numbers were both down from $440.4 billion and $439.4 billion respectively in 2012). You may mote that there is a $28.1 difference between BEA's estimate of the current and financial accounts. This is known as the statistical discrepancy and it is running at between 7.4% and 8%. This discrepancy is largely due to inaccuracies in the available data upon which BEA bases its preliminary estimates. You will note that in 2012 the statistical discrepancy was only $1 billion (or about 0.2%) and this reflects the fact that BEA revises its estimates over the course of the year as it gets better data. Undoubtedly the difference in the 2013 numbers will shrink as BEA revises it preliminary estimates over the course of this year.

China's Tough Neighborhood

To a lot of people in the US, China appears to be the new Big Bad in the world. China is modernizing its military, acquiring aircraft carriers and has developed a ballistic missile to sink our aircraft carriers. This appears to be evidence that China is trying to assert its dominance in Asia and intimidate other nations. The problem with this analysis is that it doesn't consider the extent to which China is itself dominated and intimidated by other nations.

 China lives in a fairly tough neighborhood. It shares a border with Russia, North Korea, India, and Vietnam. South Korea, Taiwan, and Japan are also close by the Chinese coast. According to Global Firepower's ranking of military power, four of these nations (Russia, India, Japan and South Korea) are among the top 10 most powerful militaries in the world.  Taiwan falls in the top 20 and Vietnam comes in at 23rd. China can only count the troublesome North Korea as an ally, though it does have good relations with neighboring Pakistan, Kazakhstan, and Myanmar. (In contrast, the United States borders Canada, ranked 16, and Mexico, ranked 33rd. Among the top ten most militarily powerful nations, 6 are close allies of the US.)

Not only are China's neighbors well armed, but there is a history of armed conflict between them and China. While most Americans are aware that China was North Korea's ally in the Korean war and may be aware that China was invaded by Japan in what would become World War II, but many are not aware that China has had conflicts with other neighbors since then. China has fought wars with India in 1962, with Russia (the the Soviet Union) in 1969 and with Vietnam in 1979. Of course, China has an ongoing dispute with Taiwan over its de facto independence, a subdued dispute over its annexation of Tibet, and administers a portion of Kashmir.   In short, China does not have to look far to find security concerns, even if the United States wasn't in the picture.

Among all the regional threats it faces, in many ways, Japan looms the largest. While the United States may be China's biggest military threat or rival,  Japan is the traditional enemy. From the typical American's point of view, World War II started with Pearl Harbor, but, from the Chinese point of view,  the War of Resistance Against Japan had been going on for 3 1/2 years by December 7th 1941. Though estimates vary, Rana Mitter estimates that 14 million Chinese died in the war and a news article in a 2005 China Daily article cites a figure of 35 million Chinese dead and wounded.  Also, there is little dispute that the Japanese committed many war atrocities. Indeed, the photos taken by Japanese soldier are still circulated on Chinese websites.

In his 2020 book, Modernizing China's Military, David Shambaugh argues that anti-Japanese sentiment runs deep among officers of the Chinese People's Liberation Army (or PLA):

The anti-Japanese sentiment one encounters among the PLA at all levels is palpable. Distrust of Japan runs deep, transcends generations, and is fairly virulent among the generation of PLA officers in their forties and fifties. Japan stimulates an emotional reaction not evident even in anti-American diatribes. In conversations with PLA personnel, Americans are regularly subjected to the view that the United States is naïve to consider Japan as an ally or partner, and they often counsel the United States to be wary of Japanese intentions and military ambitions.

It is interesting to note that the virulently anti-Japanese "PLA officers in their forties and fifties" would now be in their 50s and 60s which is generally the age of generals in the military. For instance, China's Minister of Defense, Chang Wanquan, is a general who was born in 1949, making him about 65 years old. You will also notice that the Minister of Defense is not a civilian, as is the case in most Western nations. While one might be tempted to dismiss Chinese concerns about Japan's military ambitions as overblown, one cannot deny that they exist, especially in the Chinese military.

One might also ask how overblown those concerns are. Despite its constitutionally mandated pacifism, Japan is one of the top ten nations on Global Firepower military power index. With an economy only a bit smaller than China's, it could spend as much as China on its military and its ties with the US ensure that it would have access to the best technology available. Not to mention, the Japanese are no slackers when it comes to producing high technology themselves. Therefore, it is probably not much of an exaggeration to say that the only weapons the Japanese don't have are the ones they don't want.

Furthermore, the Japanese appear to have been edging up their military capabilities over the past few years. Nothing illustrates this better then the picture below that shows the latest two generations of Japanese "helicopter destroyers" side by side. The smaller ship is the DDH-181 Hyuga class ship (of which Japan built two, commissioned from 2009 and 2011) and the larger one is the DDH-183 Izumo class ship (which is to be officially commissioned next year while another ship of the class is currently being built).

One would be excused for commenting that these ships look very much like aircraft carriers, or what passes for them in navies other than f the USN. While the Japanese claim that these ships are for anti-submarine warfare, it is not hard to imagine that they could be used for amphibious or strike operations with some modification and the acquisition of the right aircraft (say the V-22 Osprey and the F-35B, though there are some technical complications involved in using the latter). As it stands the Japanese are already embarking only half as many helicopters as these ships can accommodate, thus keeping a good amount of capacity in reserve. Also, it is worth noting that all the European navies combined only have four carriers between them (though the British are working on two more). [Okay, this is just one weapons system, but I think it gives you a better visceral sense of Japanese modernization than simply quoting a defense expert or citing planned Japanese military purchases.]

Of course, one sticking point with the carriers is that, by law, Japan is not allowed to have "aircraft carriers", hence the name "helicopter destroyer".  But, one look at these ships and the growth in size between the two classes of ships suggests that the Japanese are either fudging their law or hedging their bets against a future change in it. If you are a Chinese general ( they don't have admirals or a separate navy for that matter), you probably see this as proof that the Japanese are not constrained by their laws as much as they claim and are a growing military threat that might grow faster in the future.

Then, there's the US. As the largest military in the world, the US must be reckoned with, and that reckoning has become increasingly difficult over the years. Suppose you were General Chang Wanquan. When you started your career in 1969, the US was embroiled in Vietnam and the North Vietnamese were able to put up a good fight. US air power was fierce some but Russian supplied surface to air missiles and fighter aircraft put a serious dent in it (there actually were North Vietnamese aces in those days). Vietnamese ground forces took disproportionate casualties, but, again, they could inflict enough casualties on US forces to eventually make the US go away.

In general, this boded well for China's defense strategy which was based on Mao's concept of a war of resistance. This plan relied on what is known as strategic depth and involves retreating in the face of a strong invading army to draw them into the interior of the country. Then, when the enemy is weakened by long supply lines and the demand of holding large amounts of territory, harassing attacks are used to sap their strength. The when the enemy is weakened enough that they begin to pull back, an all out offensive is launched to drive them out of the country. With many technical variations, this was the general plan and the Chinese prepared for it by amassing a large cheaply equipped military with and even larger reserve force, distributing forces around the country with the intention that they fight were they live, and locating strategic industries and military resources in the interior of the country.

For twenty years, this is more of less the plan and, though there are increasing concerns about the technological inferiority of Chinese weapons, it seems like a workable plan. Then, in 1991, the plan goes to hell when the US blows through Iraqi forces, which were better equipped than most Chinese forces,  in Operation Desert Storm. So, when Chan Wanquan becomes a Division Commander in 1992, the PLA is in the process of rethinking its doctrine and coming to terms with the fact that it needs to modernize its weapons systems and forces. (Shambaugh, 2002, p. 69-74)

In 1999, when Chan Wanquan was a Major General directing the University of National Defense, the NATO air war in Yugoslavia, provides more sobering lessons. Western air forces appeared to be able to obliterate air defenses better than those possessed by China and to attack targets with long range precision guided weapons with impunity. This rendered the concept of geographic strategic depth as meaningless and provided a chilling example of what the US and Japan might do to China if it invaded Taiwan (Shambaugh, 2002, p. 74-76).

At the same time, China's rapid economic development has changed the nature of what the PLA has to defend. The growth of the Chinese export industry has shifted manufacturing, and much of the population, from the interior of China to coastal regions. The need to import large volumes of industrial import and export equally large volumes of export overseas means that the PLA can no longer be content with simply defending China's borders, much less do so with a plan that involves retreating to the country's interior (tough that plan was dropped in the 1980s).

Of course, the US has arguably not fared so well in Afghanistan and Iraq. However, the difficulties that the US faced in fighting a counterinsurgency campaign, which would have been very heartening to the Chinese when they were planning to fight a protracted war of resistance back in the 1970s, may be of little comfort to them in their current situation. Indeed, the demonstrated difficulty of counterinsurgency might be downright chilling if the PLA considers the possibility of occupying Taiwan itself. Furthermore, if one focuses on the early more conventional phases of the war in Afghanistan and Iraq, the US demonstrated an increased ability to rapidly rapidly government military forces with relatively few ground forces of its own. This might suggest to them that, even if they took Taiwan, they would not be able to keep it for long.

The overarching point here is that, even though the Chinese military has been modernizing and developing new capabilities, the bar they need to jump over has been rising as well. Though their military capabilities have been increasing, both the demands placed on it (in terms of what they need to defend) and the militray capabilities of potential opponents have also been increasing. It is hard to say whether their capabilities have lost or gained ground on their security demands and potential opposition. In that context, the prospect of a US pivot towards Asia is probably a fairly frightening thing to China's defense planners and this is something to keep in mind as you interpret Chinese actions.

The Fox and the Hedgehog

Nate Silver's FiveThirtyEight.com officially launched this week and it has taken a fox as its logo. In his rather long manifesto, What the Fox Knows, Nate Silver explains that this is an allusion to a phrase by the Greek poet Archilocus , "The fox knows many things, but the hedgehog knows one big thing.” Silver explains that at FiveThirtyEight he intends to take a pluralistic approach to analyzing the news in order to provide a better understanding of it. The banner used in his post (shown below) gives you a sense of what he means:

In the Silver graphic, we see the hedgehog has gotten over a couple of obstacles but is stuck at the first tall barrier. Meanwhile the fox has surmounted that barrier, perhaps by going back a jumping from the top of the second one, and is looking forward and above the remaining ones.

What makes me bring this up is that I have seen this fox-hedgehog dichotomy before in Dani Rodrik's The Globalization Paradox. In that book, he makes a distinction between economists who are captivated by one theoretical model or interpretation of the world (their one big idea) and other economists who entertain multiple models or interpretations. Like the hedgehog, who responds to every perceived threat by curling up in a ball, the first group of economists interpret every situation through the same theoretical lens and prescribe the same solution to every problem or policy question. The second, more fox-like group, sizes up the situation, chooses what they think is the most applicable model or combination of models,  and then offers a solution somewhat unique to the problem at hand.

Rodrik uses the analogy more recently in a recent post at Project Syndicate. There he writes:

The philosopher Isaiah Berlin famously distinguished between two styles of thinking, which he identified with the hedgehog and the fox. The hedgehog is captivated by a single big idea, which he applies unremittingly. The fox, by contrast, lacks a grand vision and holds many different views about the world – some of them even contradictory.

We can always anticipate the hedgehog’s take on a problem – just as we can predict that market fundamentalists will always prescribe freer markets, regardless of the nature of the economic problem. Foxes carry competing, possibly incompatible theories in their heads. They are not attached to a particular ideology and find it easier to think contextually.

Scholars who are able to navigate from one explanatory framework to another as circumstances require are more likely to point us in the right direction. The world needs fewer hedgehogs and more foxes.

It is important to point out that Rodrik is not arguing against having models or simplified visions of the world. He notes that everybody has some mental model (or set of models) of the world that categorizes the objects and people in it, and identifies cause and effect relationships among them. Because they are simplified, these models are all necessarily wrong at some level and prone to backfire on us when we try to use them in situations to which they do not apply. Yet, such models are necessary to enable people to navigate the complexities of the world.

Rodrik argues that the strength of social science lies not in eschewing such models but in building more thought out and explicit ones. In his words (again in the Project Syndicate piece):

The best that social science has to offer is in fact not much different. Social scientists – and economists in particular – analyze the world using simple conceptual frameworks that they call “models.” The virtue of such models is that they make explicit the chain of cause and effect, and therefore render transparent the specific assumptions on which a particular prediction rests.

Good social science turns our unexamined intuitions into a map of causal arrows. Sometimes it shows how those intuitions lead to surprising, unanticipated results when extended to their logical conclusions.

Even so, Rodrik argues that social scientists can do real harm if they apply the wrong model to a situation, such as diagnosing a situation as comparable to Munich in 1938 when it is in fact more comparable to Sarajevo in 1914. The underlying problem, as Rodrik sees it, is not that social science develops models but that it does not teach social scientists how to choose between alternative models. Furthermore, it does not reward them for being good at choosing between existing models as much as it does for developing new models.

From my point of view, the fox-hedgehog analogy is useful to emphasize the need to choose wisely among alternative models. However, in denigrating the hedgehogs' attachment to a model, it runs the risk of denigrating the usefulness of the models to which the hedgehogs are attached. Indeed, Isaiah Berlin noted that there is some debate among scholars about what Arcohilocus meant to say about the fox and the hedgehog. After all, the hedgehog's one big idea (to curl up in a ball and let its spiny quills protect it from predators) tends to defeat the fox's many ideas. I am also reminded of what Kenneth Waltz (who is certainly in the hedgehog category) said in defense of realism, that goes something like "Realism does not explain everything, but what it does explain is important."

Therefore, if an analogy must be used, I prefer a tool box analogy (which I inherited from one of my professors, David Austen Smith). Theoretical models are like tools in a toolbox and, generally more are better than less. Over the years, I have had that stuck in my head and have joined it with old cliche that "If all you have is a hammer, everything looks like a nail." This cliche covers the so-called hedgehogs who may be thought of as possessing one theoretical hammer, but keeps in mind the undeniable value of having a good hammer when you need to drive a nail.

In general, analogies are imprecise things and it is probably better to lay things out in precise terms. Theoretical models are necessary to social science and using most appropriate model is critical to explaining particular events. However, it is in the nature of academia, indeed of most professions, that some people will specialize in developing and applying one model. Furthermore, it may be that the nature of academic discipline provides incentives for such specialists to defend  their approach as more encompassing in validity than alternative theoretical approaches. Since new ideas replacing old ideas is a fundamental part of scientific progress, some level of such competitiveness may be essential and desirable. An unfortunate side effect of this may be that the need to pick and choose among alternative theories is often obscured.

In the end, the choice is between being doctrinaire or pragmatic in one's use theory.

Some Articles on the Crimean Crisis

You'll note that I am being optimistic in referring to this as the Crimean Crisis instead of the Ukraine Crisis. I am hopeful that Russia intervention will remain limited to the Crimean peninsula, but, while I think that this is the most likely prospect, I am by no means certain of it.

The Monkey Cage, a political science blog at the Washington Post, has been posting articles on the subject since the days right before Russia intervened. I covered a few of them earlier here and here. I also posted a little analysis of my own (along with a Ron Burgundy meme, "Well that escalated quickly!") by discussing the economic troubles in Ukraine and Charles Krauthammer's criticism of Obama over the crisis.

Next week (or later this week), I will be looking at different theoretical perspectives on the crisis for the benefit of my POL2260 students. But, for now, here are a couple more links to interesting articles at The Monkey Cage.

What is motivating Putin? by Joshua Tucker: Without arguing in favor of one interpretation over another, Tucker identifies four explanations for Vladimir Putin' motivations for intervening in Crimea that Tucker see in much of the ongoing commentary. In brief these are as follows:

1. The importance of Crimea for Russian security: This view holds that events in Ukraine threatened vital Russia security interests, primarily access to Russia's naval base in Sevastopol in a way that Putin could not ignore.
2. The “greater Russia” plan: In this view, Putin is acting to regain the loss to Russia's geopolitical position that was lost with the collapse of the Soviet Union. This is certainly Krauhammer's view on the subject.
3. Putin’s post-2011 new domestic constituency: Others argue that Russian protests against corruption in parliamentary elections has forced Putin to embrace nationalist and religious conservatives to make up for lost support from more moderate groups in Russia. (See the next two links below)
4. The Euromaidan example as a threat to the Russian political regime: Finally, there is the view that Putin sees the ouster of Ukrainian President Viktor Yanukovcyh as a threat to his hold on power, in terms of it being an example that Russian opposition might follow. 

Whatever you think of any of the above motivations, I think it is useful to keep a range of alternative explanations for Putin's actions in mind to avoid becoming fixated on one in particular.

How Putin’s domestic audience explains Russia’s behavior by Boris Barkanov: I think that one of the biggest mistakes that people make when analyzing international events is to assume that a foreign leader is acting on his/her own, without worrying about domestic support. Even dictators like North Korea's Kim Jong Un have some sort of domestic constituency upon whom their power depends. In democracies, this constituency is both more obvious and difficult to please, but authoritarian leaders do have to look over there shoulder to make sure their followers are with them (and that none are about to make a move on them). Therefore, Barkanov's analysis of Putin's domestic constituency is very useful (to the point of being a must read).

In general, Barkanov sees Putin as "a strategic actor motivated by domestic concerns." He argues that portraying Putin as a dictator misrepresents that nature of Russian domestic politics which he describes as follows:

Russia is a hybrid system that combines elements of authoritarianism and pluralism.  State-sponsored repression, though now growing, has been selective and relatively limited.  Intense elite competition, elections, and public opinion are managed, but they matter more than the conventional wisdom holds.  This means a successful solution [to the crisis] has to accommodate an attentive public, as well as domestic elites’ various security, economic, and ideological interests.

Barkanov describes Putin himself as follows:

Some have suggested that Putin may be a new Hitler. A better historical analogy is to think of him as a 21st century Russian Bismarck.  My research supports former Secretary Henry Kissinger’s view that Putin is an intelligent, rational, strategic actor who views politics through a realist lens that is informed by his view of Russia’s history.  He began as a neo-liberal statist who has gradually drifted to the right for political reasons.

From this point of view, Putin's moves in Crimea have been more of a tactical response to unexpected developments in Ukraine than part of a grand strategy. However, because of the national and religious importance conservative Russian attach to the Ukraine (not to mention the economic interests that elites have in current ties to Ukraine), Barkanov does not expect Putin to back down easily.

Factoids: Looking at GDPs in the World

    Here's something for both my classes this term. The four graphs below display information about World GDP and the GDPs of 8 large nations (the US, European Union, China, Japan, China, Brazil, Russia and India). GDP is gross domestic product and it measures the final value of all goods and services produced in a country. Thus, it is one way to measure the size of an economy.

    The first graph below displays the total GDP of the world (in red) and the GDP of the United States (in blue) as reported by the World Bank.

     In 2012, world GDP stood at $72.4 trillion and US GDP was $16.2 trillion. What you should notice in the graph is that world GDP has been growing at a faster rate since 2002 than the US (7.6%/year for the world vs 4% for the US).  You will also notice that the world had two flat spots in GDP growth from 1981 to 1985 and 1993 to 2001 (albeit with a little step up in the middle). Finally, you will notice that the world economy took a big hit after the 2007-2008 Banking Crisis. Where the US economy shrunk by 2.1% from 2008 to 2009, the world economy as a whole shrunk by 5.1% in the same year.

     The next graphs displays the GDPs of the four largest economies in the world: the US, EU, Japan, and China. Though the European Union is not a nation, and did not technically exist prior to November 1, 1993, I like to think of it as economic actor in the world. Note that in the graph below, US GDP is again represented by the blue line, which allows you to put these nations in perspective to the previous graph.

     What we see in the graph above is that the US and EU nations (the red line) have always been roughly equal in terms of GDP. Of course, the EU's GDP appears to fluctuate wildly but that is a function of the changes undergone by the former communist nations that joined the EU in 2004 (keep in mind that the EU data represents the combined GDP of all current EU members even before they joined the EU and, indeed, before the EU existed).  What is perhaps more interesting to note is the havoc that the Banking Crisis and then the Euro Crisis has played on EU GDP (as evidenced by the downs and ups in the red line since 2008).

     The next thing to look at is the green line representing Japan's GDP. You can see that, in the mid 1980s, Japanese GDP started gaining on US GDP. Actually, when you take inflation into account (which this data does not do), the Japanese economy was growing faster than that of the US in the 1970s.  This was the era of US paranoia about Japan displacing the US as the largest economy in the world. People worried that Japan was using unfair trade practices to grow at the expense of US trade and employment. The Japanese were also buying US government debt, private companies and real estate (notably Rockefeller Center in NY). There was a great concern (very similar to concern voiced today about China) that the US would become subservient to Japan as a result. Nothing captured the feeling of that time better than the artwork used on the 1987 edition of Paul Kennedy's book The Rise and Fall of Great Powers shown below:

     However, things did not work out that way at all.You can see from the green line that Japanese GDP peaked in 1995 at $5.33 trillion and then dropped to $3.91 in 1998 (ouch!). Japan would not surpass its 1995 peak in GDP until 2010. Though Japan's economy languished for closer to 15 years, this what is often referred to as a Lost Decade of economic growth.

     Then there is China whose GDP is represented by the purple line in the graph above. Clearly, China has had an astounding amount of economic growth. They have surpassed Japan in GDP and are gaining on the US and EU as Japan was in the 1980s. However, unlike Japan, China has a much larger population than the US and EU. Therefore, one would expect their economy to eventually surpass the US and EU in size. The question is will they continue on a path of sustained growth or will they experience a setback similar to Japan's. That's a deeper question for another time (which even then cannot be answered with certainty) but it is a possibility worth keeping in mind.

   In 2001, Jim O'Neil coined the term BRIC to refer to Brazil, Russia, China, and India as a set nations whose economic growth might shift some economic power away from the existing advanced economies. The graph below shows the GDP of the BRIC nations fro 1989 (the first year in which the World Bank has data n the Russia Federation's GDP) through 2012.

  The main thing you can see in the graph above is that China has decisively left Brazil, Russia and India in the dust. Indeed, the combined 2012 GDPs of the other three nations amount to only $6.1 trillion, $2.13 trillion short of China's $8.23 trillion GDP. So much for the BRICs. There is only China.

     Another thing worth pointing out here is the Lost Decade that Brazil (the purple line) experienced from 1997 to 2005. Also, you might notice that Russia's GDP (green line) has not done so well since 2008. Juts note these things for now.

   The final graph shows the share of world GDP accounted for by each of the big four's GDPs.  That is to say, it displays the GDP of the US, EU, China and Japan as a percentage of world GDP. This is an important statistic because a nations ability to effect the world economy is roughly proportional to the size of its economy relative to that of the rest of the world.

   What we see in this graph is that the US starts out with 38% of the world's GDP in 1960. This percentage declines a little bit in the 1960s  before dropping rapidly in the 1970s to end up at just below 26% in 1980. Then the world economy hits that 1981-1985 flat spot in growth mentioned in conjunction with the first graph presented above and the US percentage of world GDP climbs back up to above 34% in 1985. Then the world starts growing faster again, and the US percentage drops back down to below 26% in 1995 (basically in the middle of the 1993-2001 flat spot in world economic growth). From this point, the US percentage climbs to above 32% in 2001-2002 before starting to decline to its present point at around 22%.

     What one might take from this is a picture of the US having a diminished but roughly stable (at least within the 25-35% range) percentage of world GDP from 1970 to 2000. This percentage (and the influence it gives the US) has stated to decline to new lows since 2002 and is likely to continue in the future. The other point to keep in mind is that this is not due to a decline in the US economy as much as it has to do with strong growth in the world.

     Of course, a big part of that growth comes from China's rapidly rising GDP. China is still a minor player with only about 11% of the world economy, which is far below Japan's 1995 peak at almost 18% of world GDP. Still, China is rising in relative size and, if it surpasses the US in GDP it will necessarily have a larger percentage of the world's GDP.

     But what about the red line representing the EU whose GDP represents 23% of the world GDP . To be sure the EU didn't exist before 1993 and only existed in its current form (i,e., with all its current members) in 2007. And, yes, in its current form it isn't quite like a nation (for instance the entire EU does not use the Euro). But it is potentially a powerful player in the world economy that both China and the US may need to accommodate in the future.

    Indeed, it is probably the case that no one nation will ever be as large as the US was relative to the world economy in 1960s, or for that matter, from 1970 to 2000. Managing the world economy will probably require coordination between the US, EU and China (and perhaps India if it grows in proportion to it very large population).

Security Factoids for My POL2260 Students

As I welcome new students to my World Politics class, I thought I would offer up some factoids that provide a partial snapshot of the world. In International Relations, security concerns always seem to come first, so this post will look at violence around the world.

To be honest, I often hear people talk about the world being more dangerous nowadays and I have no idea what they are talking about. Part of it is a generational thing. I grew up during the Cold War when mutual assured destruction was only a 30 minute minute missile flight. As a kid growing up in NJ, I could see the Twin Towers from my bedroom window and was all too aware that New York City was undoubtedly the target of several Soviet ICBMs. As horrific as the 9-11 attack on the WTC was, it pales in comparison to the destruction that hung over our heads during the Cold War.

Cranky old-guy ramblings aside, as a scholar I also look at the data and it almost universally describes a world that is less violent and conflictual.   First, consider the level of conflict between nations, which is the traditional source of man-made death and destruction. The 2013 Human Security Report has a couple graphs (below) that show that number of battle deaths from state based conflicts (what most folks call wars) and the number of conflicts themselves have decreased since the end of the Cold War. (Note: the captions to the graph are from the original figures in Human Security Report.)

While interstate conflict and warfare is not quite a thing of the past, we have been seeing very little of it lately and that is a very encouraging sign. Of course, the fact there has been little of it lately is no guarantee that more of it won't flare up in the future, but we should not be blind to the fact that we are living in an uncommonly peaceful time. Indeed, the 2013 Human Security Report examines the debate over whether or not we are in the most peaceful period in all of human history.

If this doesn't make you feel sanguine about national security, it is worth pointing out that the US currently spends far more than anyone else in the world. Indeed, the Center for Arms Control and Non-Proliferation estimates that in 2012 the US spent 6 times as much as on defense China, 11 times more than Russia, and 27 times as much as Iran. Indeed, US spending accounted for 41% of global defense spending in 2012 and  is equivalent to the amount spent in the same year by the next 15 largest defense spenders in the world. Furthermore, eleven of those 15 nations (Canada, Israel, Italy, Australia, Germany, South Korea, Germany, France, Saudi Arabia, Japan, and the UK) have close security ties to the US and two (India and Brazil) are democracies that do not appear to pose a threat to US interests.

Of course, China's economy is growing and, along with it, their military budget. If, and when, the Chinese economy approaches the size of that of the US, it is conceivable that they could spend a comparable amount on their military as the US. However, they currently spend about 1.24% of their GDP on defense (about the same percentage as Germany and Italy), which is far less than the roughly 4% that the US spends. So, even if the US cuts defense spedning, it will be in the lead for a while. It also is interesting to note that the Chinese spend about as much on building High Speed Rail ($100 billion) as they do on their military ($102 billion though some estimates run as high as $126 billion). Therefore, while Chinese military growth bears watching, we should not be overly alarmed by it at present (or we might leave part of the worrying to Japan).

Okay, that's a quick look at interstate security, but what about terrorism? After all, concerns about terrorism are almost certainly on people's minds when they say the world is more dangerous. The National Consortium for the Study of Terrorism and Responses to Terrorism (or START) reports that terrorist attacks have been increasing in frequency and destructiveness over that past few years. In 2012, saw a record high of 15,400 people killed in terror attacks, which exceeds the previous high of 12,500 in 2007. However, 54% of these attacks and 58% of the deaths from terror have been concentrated in three countries: Pakistan, Iraq and Afghanistan. START  has a nice interactive map that shows the location and intensity of terror attacks in 2012 that lets you visualize the distribution of terrorism around the world.

While one doesn't want to minimize concerns over tens of thousands of deaths, we need to put this into perspective against the number of deaths that occur from interstate warfare. If you scroll back to the first graph (Figure 1.1 from the 1023 Human Security Report), you'll note that the graph is marked in hundreds of thousands of deaths. So, the 2012 deaths from terrorism would be plotted at 0.15 on the graph. Again without seeking to trivialize the horrors of terrorism, one has to point out that terrorism does not come close to producing the levels of fatalities that occur in interstate wars. This is especially clear if you note that the HSR Figure 1.1 does include World War II which caused millions of deaths each year.

START also has a layered graph that shows the number of terrorist attacks since 1971. If you click on thegraph (which is necessary to see the latest years in the data), you will note that the number incidents in the past few years is about the same as the previous peak in 1991. You will also see that the late 1980s and early 1990s was period of frequent and widely distributed terrorism. Interestingly, 2001, the year of the 9-11 attacks, came at the end of a period with unusually low numbers of terrorists attacks. Also, if you switch the graph from its default display of incidents grouped by country attacked to incidents grouped by type of attack, you will note that bombings and armed assaults have become much more prevalent, which has made terror attacks more indiscriminate and deadly on average.

So, what do we make of all this? I think we should avoid drawing broad conclusions from this data in favor of adopting a broader perspective. I would suggest that our growing concerns with terrorism, while entirely valid, are partly driven by diminished concerns about interstate war, which is potentially greater threat to a larger number of people. Put more informally, we should be so lucky to live in a world in which terrorism is our biggest security threat. Also, when we look at terrorism, we have to recognize that it is currently trending to be more of a regional threat than a global one. Something to keep in mind when you watch the upcoming season of "24."